After IPO, Facebook Gets Serious About Making Money

The Company Is Getting Serious About Making Money; But the Stock Is Stuck

On the anniversary of its IPO, mobile is taking off on Facebook. So why did revenue decline last quarter? WSJ's Jason Bellini has "The Short Answer." Image: Getty

By

Evelyn M. Rusli

May 16, 2013 7:38 p.m. ET

Two weeks ago, new posters began appearing at the headquarters of Facebook Inc. The posters proclaimed: "Advertisers are users too*." At the bottom of the page, in smaller font, was the phrase "*no srsly," Internet shorthand for "no seriously."

On the eve of Facebook's IPO anniversary Saturday, how the company tackles revenue is one of the biggest challenges in its short life as a public company. Evelyn Rusli joins MoneyBeat.

On the eve of Facebook's IPO anniversary Saturday, how the Menlo Park, Calif., company tackles revenue is one of the biggest challenges in its short life as a public company. After eight years of focusing on user growth, Facebook has pushed revenue up its priority list and restructured its business so that many of its best minds are now thinking about driving sales.

ENLARGE

Wall Street likes social media, but some analysts are skeptical whether Facebook's stock can return to its initial price of $38 any time soon. MarketWatch's Ben Pimentel reports. (Photo: Getty Images)

Before filing for its IPO, Facebook made 85% of its revenue from desktop ads in the right-hand column of its website, with the rest coming from a payments business fueled by virtual-goods sales from Zynga Inc. games.

Today, the company is experimenting with more than 10 other ways to make money, including a fledgling e-commerce store and fees that it charges users to send chat messages to strangers.

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Facebook has also broadened its ad business, running ads for the first time on mobile devices, in its News Feed, and creating special widgets for mobile, such as ads that promote installations of third-party applications. Facebook has also introduced products familiar to advertisers, including tools that target people based on their website visits or their offline behavior. And it has reorganized itself so project managers and some engineers take ownership of revenue targets.

The changes have helped lift Facebook's revenue to $1.46 billion in its most recently reported quarter, up 36% from $1.06 billion in the same period a year earlier. A quarter of the company's revenue now come from mobile ads.

From the Archive

The highly-anticipated Facebook IPO was plagued with problems, potentially costing thousands of dollars to many small investors and further damaging Wall Street's reputation on Main Street. A Wall Street Journal report. (Originally published June 10, 2012)

But none of that has been enough to push Facebook's stock back up to its IPO price last May of $38. On Thursday, the company's shares closed at $26.13, down 1.8% on the day and 31% from its IPO price.

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The increasing importance of boosting sales also could jeopardize the users' experience—a point not lost on Facebook's chief, who has repeatedly said that Facebook wasn't originally built to be a company. On this month's earnings call, Mr. Zuckerberg assured investors that the site hasn't "seen any meaningful impact on the [user] satisfaction"—implying that there may be some drag on user experience—just not enough to matter.

Still, some investors said they are encouraged by Facebook's new attitude toward revenue. Mark Hawtin, portfolio manager of the roughly $250 million GAM Star Technology Fund, said he's bought more Facebook shares recently because of the rollout of new ad products and because of comments Mr. Zuckerberg made in September about his focus on revenue and mobile.

ENLARGE

Facebook CEO Mark Zuckerberg celebrates on May 18, 2012.
Reuters

When Facebook went public, the company's message was "we focus on the user growth and engagement and the revenue will take care of itself," said Mr. Hawtin, who added that Facebook is now one of his top three holdings. "After the IPO, the message was that revenue and mobile are now also key parts."

The tone around revenue began changing in early 2012, especially after the fourth-quarter earnings report revealed a sharp drop in sales growth.

Facebook rushed to shore-up its mobile applications. The company introduced mobile ads in March 2012 through its main channel, the News Feed. Now ads were no longer relegated to the right-hand side of the site, but were literally at the center of the product.

At one meeting last July, as Facebook's newly public stock was getting pummeled, the social network's managers, dubbed the "M Team," decided that more teams needed to be held responsible for revenue.

Chief Executive Mark Zuckerberg and his top lieutenants, including operating chief Sheryl Sandberg and financial head David Ebersman, reviewed Facebook's entire business at the meeting, going product by product and team by team.

Revenue was "a priority whose time has come," said David Fischer, vice president of marketing, who attended the meeting. "More leaders needed to be accountable."

Some of Facebook's key engineers were asked to solve revenue-related issues for the first time. In February, Andrew Bosworth, a member of the "M Team" and a creator of News Feed, became the head of advertising engineering, in which he oversees the technical infrastructure behind the ad products.

Jason Sobel, a senior Facebook engineer who spent six years working on infrastructure and mobile, also switched to work on ads in November. "We were getting beat up a lot externally (so) I felt like it was an opportunity to have a big impact," he said.

Project managers for some business groups like News Feed were encouraged to educate themselves on how their product made money and to own revenue targets.

More ad employees began to work closely alongside product engineers and engineers began to visit Facebook's advertisers. Several members of the ads team officially switched to work with product teams.

ENLARGE

In one sign of how a more revenue-centric culture was being inculcated, Facebook in March organized a field trip to Cincinnati for a few dozen employees including product engineers to one of its biggest advertisers, Procter & Gamble Co., so those employees could learn about the client's needs and objectives.

Members of Facebook's "M Team" who had never spent time with clients before, such as human resources head Lori Goler, also began attending meetings with brands.

For advertisers, Facebook's revenue-friendly attitude is giving them more excuses to spend. Online retailer JackThreads.com said it has doubled spending on Facebook over the past year because there are more products to experiment with. While it once only bought right-hand column ads on Facebook's website, JackThreads now has purchased photo and link ads for the desktop and mobile news feeds, among other things.

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It also plans to use Facebook Exchange, a real-time marketplace to buy ads based on what sites users are visiting. The company declined to disclose how much it is spending on Facebook.

"The more sophisticated the tools, the more comfortable we'll feel spending significant dollars with them," said Ryan McIntyre, JackThreads's executive vice president of marketing, who said he would still like Facebook to provide more data for its newfangled mobile ads.

In April, Facebook started holding ad boot camps for employees to educate them on what Facebook's clients are looking for, how different ad products work and the company's broader strategies.

The program, which has been held twice so far, runs about half a week and features sessions with Facebook's ad experts.

In the future, the company plans to incorporate advertisers for "client immersion sessions," said Gokul Rajaram, Facebook's product director for ads.

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